FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-46104-FW
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THERMOENERGY CORPORATION
------------------------
(EXACT NAME OF REGISTRATION AS SPECIFIED IN ITS CHARTER)
Arkansas 71-00659511
--------------------------------- ----------------------
(State or other jurisdiction of (I.R.S.Employer
of incorporation or organization) Identification Number)
323 Center Street, Suite 1300, Little Rock, Arkansas 72201
-----------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(501) 376-6477
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
The number of shares outstanding of each of the issuer's classes of common
stock, as of March 31, 2000:
3,811,791 shares of Common Stock, par value $.001 per share
<PAGE>
ITEM 1. FINANCIAL INFORMATION
Accountant's Report
Stockholders and Board of Directors
ThermoEnergy Corporation
We have reviewed the accompanying condensed balance sheet of ThermoEnergy
Corporation as of March 31, 2000, and the related condensed statements of
operations and cash flows for the three-month periods ended March 31, 2000 and
1999, and for the period cumulative during development stage through March 31,
2000, and the related condensed statements of changes in stockholders' equity
(deficit) for the periods ended September 30, 1988 through March 31, 2000. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, which will be performed for the full
year with the objective of expressing an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of ThermoEnergy Corporation as of December 31,
1999, and the related statements of operations, stockholders' equity, and cash
flows for the year then ended and for the period cumulative during development
stage through December 31, 1999, not presented herein, and in our report dated
March 3, 2000, we expressed an opinion on those financial statements which
contained an explanatory paragraph relating to the Company's ability to continue
as a going concern. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1999, is fairly stated,
in all material respects, in relation to the balance sheet from which it has
been derived.
Little Rock, Arkansas
May 3, 2000
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(Unaudited) (Note 1)
ASSETS
<S> <C> <C>
Cash - Total Current Assets $ 39,286 $ 101,091
Advances to officers 633,015 598,015
Accrued interest receivable - officers 112,265 98,930
Property and equipment, at cost:
Equipment 14,818 14,818
Furniture and fixtures 4,991 4,991
Less accumulated depreciation (19,809) (19,809)
------------- --------------
- -
------------- --------------
$ 784,566 $ 798,036
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 464,200 $ 661,176
Accrued interest payable - primarily to related parties 507,148 414,425
Deferred compensation 1,773,846 1,660,695
Notes payable to stockholders (Note 5) 178,735 178,735
------------ -------------
Total Current Liabilities 2,923,929 2,915,031
Convertible Debentures (Notes 2 and 4) 2,516,756 2,199,379
---------- ------------
Total Liabilities 5,440,685 5,114,410
Stockholders' equity (deficit) (Notes 3 and 4):
Preferred stock, non-voting, $1 par value:
Authorized - 10,000,000 shares; none issued
Common Stock, $.001 par value:
Series A Common Stock; Authorized - 10,000,000
shares; no shares issued and outstanding
Series B Common Stock; Authorized - 65,000,000
shares; March 31, 2000: issued - 3,886,118 shares; outstanding -
3,802,289 shares; December 31, 1999: issued - 3,883,618
shares; outstanding - 3,799,789 shares 3,886 3,884
Additional paid-in capital 4,663,795 4,658,797
Deficit accumulated during the development stage (9,323,800) (8,979,055)
----------- -----------
(4,656,119) (4,316,374)
----------- -----------
$ 784,566 $ 798,036
=========== ============
</TABLE>
See notes to financial statements.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
During
Development
Stage Through Three Months Ended
March 31, March 31,
2000 2000 1999
---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating Expenses:
General and administrative $ 6,983,586 $ 222,796 $ 179,171
Payments under licenses 819,766 22,500 35,000
Travel and entertainment 1,222,717 44,387 43,416
--------- ------ ------
9,026,069 289,683 257,587
--------- ------- -------
Loss From Operations (9,026,069) (289,683) (257,587)
----------- --------- ---------
Other Income (Expense)
Interest income 175,710 14,017 8,756
Gain on settlement of lawsuit
(Note 6) 317,423 23,644
Other 49,550
Interest expense (840,347) (97,723) (64,396)
-------- ------- -------
(297,664) (55,062) (55,640)
-------- ------- -------
Net Loss $ (9,323,733) $ (344,745) $ (313,227)
============== =========== ===========
Basic and Diluted
Per Common Share (Note 4)
Loss From Operations $ (2.38) $ (0.07) $ (0.06)
Net Loss $ (2.46) $ (0.08) $ (0.08)
</TABLE>
See notes to financial statements.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Periods Ended September 30, 1988 Through December 31, 1999
and the Three Months Ended
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
----- ------- ----- -----
<S> <C> <C> <C> <C>
Issuance of stock, January 1988,
(2,205,762 shares at $.08 per share) $ 2,206 $ 178,094 $ $180,300
Net loss (290,483) (290,483)
-------- -------- -------- --------
Balance (deficit), September 30, 1988 2,206 178,094 (290,483) (110,183)
Conversion of $412,000 of debentures
and accrued interest, September 1989
(306,335 shares) 306 456,695 457,001
Net loss (338,985) (338,985)
-------- -------- -------- --------
Balance (deficit), September 30, 1989 2,512 634,789 (629,468) 7,833
Net loss (255,036) (255,036)
-------- -------- -------- --------
Balance (deficit), September 30, 1990 2,512 634,789 (884,504) (247,203)
Conversion of $63,000 of unsecured
debentures and accrued interest at 10%,
March 1991, (44,286 shares) 44 70,813 70,857
Issuance of stock, May - June 1991
(387,880 shares: 366,630 at $1.60
per share; 21,250 shares at $.80 per
share) 388 603,219 603,607
Issuance of stock for interest, June 1991,
(1,375 shares at $1.60 per share) 1 2,199 2,200
Issuance of stock for expenses
incurred by stockholders, July 1991
(5,081 shares at $1.60 per share) 5 8,124 8,129
Net loss (670,179) (670,179)
-------- -------- -------- --------
Balance (deficit), September 30, 1991 2,950 1,319,144 (1,554,683) (232,589)
</TABLE>
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through December 31, 1999
and the Three Months Ended
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
----- ------- ----- -----
<S> <C> <C> <C> <C>
Issuance of stock, October - December
1991 (150,925 shares at $1.60 per
share) $ 151 $ 241,329 $ $ 241,480
Shares purchased in rescission offer
(10,562 shares) (11) (16,888) (16,899)
Issuance of stock, public offering, August-
September 1992 (344 shares at $16.00
per share) 1 5,499 5,500
Net loss (562,751) (562,751)
-------- -------- -------- --------
Balance (deficit), September 30, 1992 3,091 1,549,084 (2,117,434) (565,259)
Issuance of stock, public offering October
1992 - September 1993 (92,785 shares
at $16.00 per share) 93 1,484,457 1,484,550
Issuance of stock for exercise of stock
options, May 1993 (2,500 shares at
$1.60 per share) 3 3,997 4,000
Issuance of warrants to stockholder 6,333 6,333
Conversion of $103,000 of notes payable
to stockholders and accrued interest,
December 1992 (6,438 shares) 6 102,994 103,000
Issuance of stock for consulting
services, June 1993 (9,375 shares
at $16.00 per share) 9 149,991 150,000
</TABLE>
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through December 31, 1999
and the Three Months Ended
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
----- ------- ----- -----
<S> <C> <C> <C> <C>
Net loss $ $ $(1,207,921) $(1,207,921)
-------- -------- -------- --------
Balance (deficit), September 30, 1993 3,202 3,296,856 (3,325,355) (25,297)
Issuance of warrants to stockholders 226,000 226,000
Issuance of stock for exercise of stock options
March 1994 (3,750 shares at $1.60 per share) 4 5,996 6,000
Issuance of stock for exercise of warrants by
stockholder, August 1994 (3,677 shares at
at $13.60 per share) 4 49,997 50,001
Net loss (767,427) (767,427)
-------- -------- -------- --------
Balance (deficit), September 30, 1994 3,210 3,578,849 (4,092,782) (510,723)
Issuance of warrants to stockholders 9,760 9,760
Issuance of stock, May 1995 (6,250
shares at $8.00 per share) 6 49,994 50,000
Issuance of stock for exercise of
warrants by stockholder, June 1995
(6,250 shares at $8.00 per share) 6 49,994 50,000
Issuance of stock for expenses, July
1995 (18,750 shares at $8.00 per share) 19 149,981 150,000
Net loss (896,998) (896,998)
-------- -------- -------- --------
Balance (deficit), September 30, 1995 3,241 3,838,578 (4,989,780) (1,147,961)
Issuance of warrants to stockholders 5,340 5,340
Net loss (551,621) (551,621)
-------- -------- -------- --------
</TABLE>
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through December 31, 1999
and the Three Months Ended
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development
Stock Capital Stage Total
----- ------- ----- -----
<S> <C> <C> <C> <C>
Balance (deficit), September 30, 1996 $3,241 $3,843,918 $(5,541,401) $(1,694,242)
Issuance of stock, July 1997 (50,000
shares at $2.00 per share 50 99,950 100,000
Conversion of $338,100 of notes payable
to stockholders and accrued interest,
July 1997 (195,596 shares) 196 390,996 391,192
Net loss (1,196,036) (1,196,036)
-------- -------- -------- --------
Balance (deficit), September 30, 1997 3,487 4,334,864 (6,737,437) (2,399,086)
Net loss (797,099) (797,099)
-------- -------- -------- --------
Balance (deficit), September 30, 1998 3,487 4,334,864 (7,534,536) (3,196,185)
Net loss (243,660) (243,660)
-------- -------- -------- --------
Balance (deficit), December 31, 1998 3,487 4,334,864 (7,778,196) (3,439,845)
Issuance of stock in connection with 10%
notes payable to stockholders, January
1999 (67,600 shares at par value) 67 (67)
Conversion of $238,165 of notes payable to
stockholders and accrued interest, various
months during 1999 (147,602 shares) 148 295,056 295,204
Issuance of stock for expenses, August
1999 (181,619 shares at $.16 per share) 182 28,877 29,059
Net loss (1,200,792) (1,200,792)
-------- -------- -------- --------
Balance (deficit), December 31, 1999 3,884 4,658,797 (8,979,055) (4,316,374)
Issuance of stock for exercise of warrants
by stockholder, February 2000
(2,500 shares at $2.00 per share) 2 4,998 5,000
Net loss (344,745) (344,745)
-------- -------- -------- --------
Balance (deficit), March 31, 2000 $ 3,886 $4,663,795 $(9,323,800) $(4,656,119)
======= ========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
During
Development
Stage Through Three Months Ended March 31,
March 31, 2000 2000 1999
-------------- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities:
Net loss $(9,323,733) $(344,745) $(313,227)
Items not requiring
(providing) cash:
Depreciation 19,809
Expenses funded by Common
Stock issuance 625,338
Other (Note 6) (314,082) (23,644)
Changes in:
Advances to officers (831,998) (35,000) (42,000)
Other receivables (112,265) (13,335) (8,538)
Accounts payable 789,200 (1,599) (17,641)
Accrued expenses 692,943 92,723 64,396
Deferred compensation 1,972,828 113,151 92,591
------------ ----------- -----------
Net cash used in
operating activities (6,481,960) (212,449) (224,419)
----------- ----------- -----------
Investing activities:
Purchase of fixed assets (19,808)
Other 314,082 23,644
----------- ----------- -----------
Net cash provided by
investing activities 294,274 23,644
----------- ----------- -----------
Financing activities:
Proceeds from issuance of
Common Stock and warrants 2,725,562 5,000
Proceeds from notes payable 1,665,609
Proceeds from convertible debentures 1,882,000 122,000 135,000
Payments on notes payable (154,609)
Other 108,410
----------- ----------- -----------
Net cash provided by
financing activities 6,226,972 127,000 135,000
----------- ----------- -----------
Increase (decrease) in cash 39,286 (61,805) (89,419)
Cash, beginning of period 0 101,091 113,220
----------- ----------- -----------
Cash, end of period $ 39,286 $ 39,286 $ 23,801
============ =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 2000
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1999.
NOTE 2: CONVERTIBLE DEBENTURES
During February 2000, the Company's Board of Directors approved the issuance of
up to $7,500,000 (an increase of $5,000,000 from the amount previously
authorized) of the Series 98, 15% Convertible Debentures, due January 15, 2003.
The Company issued $317,377 of such Debentures ($122,000 for cash and $195,377
in satisfaction of an accounts payable balance) during the three months ended
March 31, 2000.
NOTE 3: COMMON STOCK
During February 2000, a stockholder exercised warrants to purchase 2,500 shares
of Series B Common Stock at $2.00 per share. During February 2000, the Board of
Directors awarded 100,000 non-qualified stock options to purchase Series B
Common Stock to the Company's Executive President and Senior Vice President of
Corporate Technology. The options expire in five years and are exercisable at
$2.00 per share. During March 2000, the Board of Directors awarded 250,000
non-qualified stock options to purchase Series B Common Stock to both the Chief
Executive Officer and the President of the Company. The options expire in five
years and are exercisable at $2.00 per share.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 2000
NOTE 4: LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss for the period by the
weighted average number of shares outstanding during the period, adjusted for
stock options and warrants issued within twelve months of the Company's initial
public offering filing date (February 27, 1992) which are treated as outstanding
for all periods presented. The adjusted weighted average number of common shares
used in the basic and diluted loss per share computations were 3,796,624 shares
for the period cumulative since inception through March 31, 2000, 4,443,724 and
4,107,148 shares for the three-month periods ended March 31, 2000 and 1999,
respectively.
Warrants to purchase approximately 671,000 shares of Series B Common Stock,
stock options awarded to officers for 300,000 shares of Series B Common Stock
and stock options for up to 750,000 shares of Series B Common Stock under the
1997 Stock Option Plan, were not included in the computation of diluted loss per
share since the effect would be antidilutive. At March 31, 2000, the Company had
issued $2,516,756 of 15% Convertible Debentures, due January 15, 2003. The
holders of the Debentures can convert the principal amount and accrued interest
into shares of Series B Common Stock at the conversion price of $2.00 per share
at any time prior to the maturity date.
NOTE 5: MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS
The Company has incurred net losses since inception and will likely require
substantial capital to continue commercialization of the Technologies. The
financial statements have been prepared assuming the Company will continue as a
going concern, realizing assets and liquidating liabilities in the ordinary
course of business and do not reflect any adjustments that might result from the
outcome of the aforementioned uncertainties. Management is considering several
alternatives for mitigating these conditions during the next year. The Company
is authorized to issue up to $7,500,000 of Series 98 Convertible Debentures and
to issue Series B Common Stock to the holders of the remaining 6.63% notes
payable to stockholders ($158,735 at March 31, 2000) upon maturity. The sale of
stock pursuant to private placement or public offerings and fees from projects
involving the Technologies are other alternatives management is pursuing.
Additional funds may be necessary in the event the Company takes on other
projects or makes an acquisition of another company to facilitate the Company's
commercial demonstration of the Technologies. If the Company is unable to enter
into commercially attractive collaborative working arrangements for one or more
commercial or industrial projects, the Company may sub-license the Technologies
to third parties.
<PAGE>
THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 2000
NOTE 5: MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS (CONTINUED)
During January 2000, the Company filed a patent application for the ThermoEnergy
Corporation Integrated Power Systems ("TIPS") technology, a clean energy process
for converting fossil fuels to energy without air emissions. Management
anticipates that the Company will rely on its own resources and that of
strategic partners in the energy business to develop TIPS.
The overall goal of the Company is to successfully complete a demonstration
project for the Technologies. Management plans to utilize any demonstration
facilities to expand the visibility of the Company in municipal, industrial,
Department of Defense and Department of Energy markets. A successful
demonstration project is the single most important business factor in
implementation of the Company's plan of operations.
Management has determined that the financial success of the Company may be
largely dependent upon the ability and financial resources of established third
parties collaborating with the Company with respect to projects involving the
Technologies. The Company has entered into agreements with third parties in
order to pursue this business strategy.
NOTE 6: CONTINGENCIES
During 1998, the Company filed a lawsuit seeking compensatory and punitive
damages from the broker-dealer involved in the Company's 1997 failed public
offering. During 1999, the Company and the broker-dealer entered into a release
and settlement agreement. In connection with this agreement, the Company
received $75,000 in cash, 50,000 shares of common stock of the parent company of
the broker-dealer (the "Stock"), and 20,000 warrants to purchase shares of the
Stock at a price of $4.00 per share for a period of five years from the date of
the agreement. The Company sold all 50,000 shares of the Stock during 1999 and
exercised warrants for 5,000 shares of the Stock which were sold during 1999.
During January 2000, the Company exercised the remaining warrants for 15,000
shares of the Stock which were sold simultaneously upon the exercise of the
warrants. A gain of $23,644 was realized in connection with this transaction.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company is the exclusive worldwide (except STORS in Japan) licensee for
four clean water environmental technologies developed by Battelle Memorial
Institute ("Battelle") and the exclusive owner of a clean energy technology for
which it has filed a patent. The four Battelle licensed technologies are
primarily aimed at solving waste water problems for broad-based markets. These
technologies include three chemical process technologies known as the
Sludge-To-Oil Reactor System ("STORS") (TM), Nitrogen Removal ("NitRem") and
Ammonia Recovery Process ("ARP") (TM). The fourth technology, a dual-shell
pressure balance vessel, known as the Dual-Shell Reactor ("DSR") (TM), is the
unique reactor equipment in which the STORS and NitRem chemistries are conducted
(collectively, STORS, NitRem, ARP and DSR are referred to as the " Water
Technologies"). The Company's applications of the Water Technologies eliminate
damaging organic and nitrogenous contaminants from municipal, Department of
Defense ("DOD") and industrial waste streams.
STORS Demonstration Project
In May of 1996, ThermoEnergy and Battelle representatives met with
officials at San Bernardino Valley Water District ("SBVWD") to discuss siting of
a full-scale STORS/NitRem demonstration project (the "Project") in the San
Bernardino area. Subsequently, the United States House and Senate approved ( PL
104-204, September 26, 1996) a $3,000,000 federal grant to SBVWD for the design,
construction and operation of a large-scale STORS Waste Water Treatment
Demonstration Facility. The General Accounting Office authorized the EPA's San
Francisco office to disburse the grant funds and otherwise administer this
grant. In March, 1998, the SBVWD selected the City of Colton, California to host
the Project. On September 3, 1998, the Company signed an agreement with the City
of Colton for the Company to demonstrate its STORS/NitRem technology. The EPA
grant has paid for the construction of the demonstration and the test equipment.
At the conclusion of the demonstration project, all right, title and interest to
the test equipment shall be vested in the EPA. The Company is not required to
make capital contributions to this project, and will not receive any revenues or
earnings from it, but will be reimbursed for administrative and operating costs.
Subsequently the Company contracted with Foster Wheeler Environmental
Corporation ("FWENC") ( See strategic relationships) to fabricate, install and
operate the STORS demonstration unit. The Company is the project general
contractor, and, through December 31, 1999, the Company has disbursed
approximately $2,451,000 to subcontractors and other vendors, (primarily FWENC)
out of $2,560,000 available for construction and equiping the project. Once in
operation, the Colton STORS facility will have a larger processing capacity than
70% of the existing municipal wastewater plants in the US. The demonstration
project is scheduled to begin operations in the second quarter of 2000.
New York City ARP Demonstration
The second commercial scale nitrogen removal demonstration project was a
team effort between ThermoEnergy, FWENC and the City of New York to test the
Company's capability to cost-effectively eliminate the concentrated discharge,
or centrate, from eight of New York City's fourteen waste water treatment
facilities. The City of New York and the Company signed a No Cost Test Agreement
in July 1996 which allowed the Company to demonstrate, on site, the Company's
nitrogen removal processes, including NitRem and ARP. The Company decided to
demonstrate the capabilities of its ARP technology at New York City's Staten
Island wastewater treatment facility. On August 4, 1998, the Company contracted
with FWENC for FWENC to provide up to $500,000 funding necessary to demonstrate
ARP and to design, fabricate and operate the ARP pilot plant. (See Strategic
Corporate relationships). The New York ARP demonstration was successfully
completed on December 18, 1998. Based on the data generated during the
demonstration and computer modeling for large-scale commercial systems, the
economics of the Centrate Ammonia Recovery, or ARP process, are excellent when
compared to alternative sources such as steam stripping, hot air stripping and
biological nitrogen reduction technologies. Depending on the throughput of the
commercial system, on a privatized basis, the cost to the client (municipality)
to treat ammonia laden wastes with ARP at the concentrations found in the
centrate, would be between 3 cents and 4 cents per gallon, including capital
equipment recovery overhead. Based upon the demonstration results, the Company
is actively seeking a privatized contract to process all of New York City's
centrate through it's joint venture with FWENC.
Results of Operations
For the three months ended March 31, 2000, the Company incurred a net loss
of $344,745 as compared to $313,227 for the three months ended March 31, 1999.
General and administrative expenses increased during the three month period
ended March 31, 2000, compared to March 31 1999, due to the Company's efforts
regarding the projects discussed above. Interest expense increased significantly
between the same two periods primarily due to the issuance of $1,425,756 of 15%
Convertible Debentures.
During 1998, the Company filed a lawsuit seeking compensatory and punitive
damages from the broker-dealer involved in the Company's 1997 failed public
offering. During 1999, the Company and the broker-dealer entered into a release
and settlement agreement. In connection with the agreement, the Company received
$75,000 in cash, 50,000 shares of common stock of the parent company of the
broker-dealer (the "Stock"), and 20,000 warrants to purchase shares of the Stock
at a price of $4.00 per share for a period of five years from the date of the
agreement. The Company sold all 50,000 shares of the Stock during 1999 and also
exercised warrants for 5,000 shares of the Stock which were sold during 1999.
During January, 2000, the Company exercised the remaining warrants for 15,000
shares of the Stock which were sold simultaneously with the exercise of the
warrants. A gain of $23,644 was recorded in the accompanying March 31, 2000,
financial statements in connection with this transaction.
Liquidity and Capital Resources
During the period ended March 31, 2000, the Company used $212,449 of cash
in operations compared to $224,419, in the comparable period or 1999. During
1992, the Company initiated a public offering of 125,000 shares of Series B
Common Stock at a price of $16.00 per share. The offering was conducted on a
"best efforts" basis, primarily by directors and officers of the Company.
Effective January 5, 1994, the offering was terminated. A total of 93,129 shares
were sold at a price of $16.00 per share and an additional 6,438 shares were
issued at $16.00 per share in satisfaction of notes payable and related accrued
interest. Currently, there is no public market for the Series B Common Stock. As
previously discussed, the Company's proposed 1997 public offering did not occur.
During the quarters ended March 31, 2000 and 1999, the Company met its
liquidity needs primarily from borrowings from stockholders. The Company
converted substantially all of its outstanding 10% notes payable to stockholders
to Series 98, 15% Convertible Debentures and plans to convert the remaining
6.63% notes payable to stockholders to shares of Series B restricted Common
Stock of the Company if sufficient funds are not available to repay the notes at
maturity. Management plans to meet the Company's liquidity needs during the year
ending December 31, 2000, through additional borrowings principally from
shareholders via the issuance of convertible debentures, from a public or
private placement offering of common stock and from the proceeds from the
settlement of the Company's lawsuit against its former underwriter. Management
plans to meet long-term liquidity needs primarily from revenues derived from
commercial contracts the Company hopes to obtain subsequent to the successful
demonstrations of its Technologies, such as the DoD Army NitRem and New York
City ARP projects and the upcoming Colton STORS/NitRem demonstration project.
Net Operating Losses
The Company had net operating loss carry forwards as of December 31, 1999
of approximately $6,450,000 which expire in the years 2003 through 2019. The
amount of net operating loss carried forward that can be used in any one year
will be limited by the applicable tax laws which are in effect at the time such
carry forward can be utilized. A valuation allowance of approximately $2,454,000
has been established to offset any benefit from the net operating loss carry
forwards as it cannot be determined when or if the Company will be able to
utilize the net operating losses.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Report on Form 8-K
(a) Financial Data Schedule on Exhibit 27.
(b) No other reports on Form 8-K have been filed during the quarter ending
June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 11, 2000
THERMOENERGY CORPORATION
BY:/s/ P.L. Montesi
-------------------
P. L. MONTESI
President, Treasurer and
Principal Financial Officer
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